Earnings call transcript: Eastern Co Q2 2025 misses EPS forecast

Eastern Co (NASDAQ:EML) reported its second-quarter earnings for fiscal year 2025, revealing a notable miss on its earnings per share (EPS) forecast. The company posted an EPS of $0.33, significantly below the forecasted $0.60, representing a 45% negative surprise. Revenue came in close to expectations at $70.2 million, just shy of the anticipated $70.21 million. The results led to a muted market reaction, with the stock price remaining unchanged at $22.51, reflecting investor caution following the earnings release. According to InvestingPro analysis, the company maintains a ’FAIR’ overall financial health score of 2.21 out of 5, with particularly strong scores in profit (2.52) and cash flow (2.48) metrics.

Key Takeaways

• Eastern Co’s Q2 EPS missed expectations by 45%.
• Revenue was nearly in line with forecasts, showing a marginal shortfall.
• The company is navigating challenging market conditions with strategic cost-saving measures.
• Market reaction was neutral, with no significant stock price movement.
• Eastern Co is focusing on M&A opportunities and margin protection.

Company Performance

Eastern Co’s overall performance in Q2 2025 was marked by a decline in both revenue and net income compared to the previous year. Revenue decreased by 3% from the prior year, while net income fell to $2 million, or $0.33 per diluted share, compared to $4.1 million, or $0.65 per share, in the same quarter last year. The gross margin also contracted to 23.3% from 25.4% a year ago. Despite these challenges, the company maintains strong fundamentals with a healthy current ratio of 2.77 and liquid assets exceeding short-term obligations. The company continues to focus on its strategic initiatives, including ramping up production for the United States Postal Service (USPS) delivery vehicle program.

Financial Highlights

• Revenue: $70.2 million, a 3% decrease year-over-year
• Earnings per share: $0.33, down from $0.65 in Q2 2024
• Gross margin: 23.3%, down from 25.4% in the previous year
• Backlog: $87.1 million, a 19% decrease from $107.3 million

Earnings vs. Forecast

Eastern Co’s Q2 2025 EPS of $0.33 fell short of the forecasted $0.60, resulting in a 45% negative surprise. Revenue closely matched expectations, with a negligible shortfall of $0.01 million. This miss in EPS is significant compared to the company’s historical performance, where earnings have typically aligned more closely with forecasts.

Market Reaction

Despite the earnings miss, Eastern Co’s stock price remained stable at $22.51, showing no change in after-hours trading. This stability indicates a cautious investor response, possibly due to the company’s strategic focus on cost savings and future growth opportunities. The stock remains within its 52-week range, with a high of $35.03 and a low of $19.06. Notably, InvestingPro data reveals the company has maintained dividend payments for 55 consecutive years, demonstrating remarkable financial stability. The current dividend yield stands at 1.95%, with quarterly payments of $0.11 per share.

Outlook & Guidance

Looking ahead, Eastern Co is optimistic about a market recovery in the coming months and quarters. The company is committed to protecting its margins and is actively exploring mergers and acquisitions (M&A) opportunities. Eastern Co’s conservative balance sheet positions it well for strategic investments and capital allocation.

Executive Commentary

CEO Ryan Schroeder highlighted the company’s strategic focus amid a challenging business environment. "We do believe the challenging environment brings unique opportunities from an M and A standpoint," he stated. Schroeder also emphasized the company’s resilience, noting, "The business environment has impacted our top line, but with all the efforts and initiatives, we have been able to minimize the hit to our profits."

Risks and Challenges

• Continued market volatility could impact future earnings.
• Supply chain disruptions may affect production schedules.
• The decrease in automotive model changes could limit growth opportunities.
• Economic pressures could impact customer demand in key markets.
• Potential challenges in executing M&A strategies effectively.

Q&A

There were no questions from analysts during the earnings call, indicating either a comprehensive presentation by the management or a lack of immediate concerns from the investment community.

Full transcript - Eastern Co (EML) Q2 2025:

Conference Operator: and welcome to The Eastern Company’s Second Quarter Fiscal Year twenty twenty five Earnings Call. At this time, all participants are on a listen only mode and a question and answer session will follow the formal presentation. And please note, this conference is being recorded. I will now turn the conference over to your host, Mary Anne Barr, Treasurer and Corporate Secretary. Ma’am, you may begin.

Mary Anne Barr, Treasurer and Corporate Secretary, The Eastern Company: Good morning, and thank you, everyone, for joining us this morning for a review of The Eastern Company’s results for the 2025. With me on the call are Ryan Schroeder, Chief Executive Officer and Nicholas Vallejos, Chief Financial Officer. The company issued an earnings press release yesterday after the market closed. If anyone has not yet seen the release, please visit the Investors section of the company’s website, www.easterncompany.com, where you will find the release under Financial News. Please note that some of the information you will hear during today’s call will consist of forward looking statements about the company’s future financial performance and business prospects, including, without limitation, statements regarding revenue, gross margin, operating expenses, other income and expenses, taxes and business outlook.

These forward looking statements are subject to risks and uncertainties that could cause actual results or trends to differ significantly from those projected in these forward looking statements. We undertake no obligation to review or update any forward looking statements to reflect events or circumstances that occur after the call. For more information regarding these risks and uncertainties, please refer to risk factors discussed in our SEC filings, including our Form 10 ks for the fiscal year 2024 filed with the SEC on 03/11/2025, and our Form 10 Q filed with the SEC on 08/05/2025. In addition, during today’s call, we will discuss non GAAP financial measures that we believe are useful as supplemental measures of Eastern’s performance. These non GAAP measures should be considered in addition to and not as a substitute for or in isolation from GAAP results.

A reconciliation of each of the non GAAP measures discussed during today’s call to the most directly comparable GAAP measure can be found in the earnings press release. With that introduction, I’ll turn the call over to Ryan.

Ryan Schroeder, Chief Executive Officer, The Eastern Company: Thanks, Mary Anne. Good morning, and thank you all for joining us today. We do appreciate your interest in The Eastern Company. Revenue for the quarter was $70,200,000 that’s down 3% from prior year. Adjusted earnings per share was $0.56 which was very similar to our Q2 twenty twenty four results.

We have made great strides improving and reducing costs in each of our three companies as well as our corporate overhead this last quarter. We overhauled Big three’s operating footprint with the closure of our Dearborn, Michigan facility as well as a warehouse while opening a smaller facility in Sterling Heights, Michigan, purpose fit for our design and prototyping businesses as well as strategically placed among our largest customers. Salaried headcount reductions occurred at Eberhard, Belvac as well as at our corporate offices, all in over 60 jobs impacted with an annual savings of $4,000,000 We updated and refreshed our strategies within each of the companies, and I’m thrilled to report Eberhard Eberhard, has been ramping up its participation in the all new United States Postal Service delivery vehicle. The government awarded this program to our longtime partner and customer, Oshkosh. First, this is the first major replacement vehicle for the United States Postal Service in almost thirty years.

Eberhard is supplying a multitude of custom designed products and systems on each vehicle. Ramp up is continuing for the remainder of the year, and this is a perfect example of how Eberhard excels, custom engineered fit for purpose access control solutions. Additional updates from the quarter include a share buyback program we purchased that completed, with 400,000 shares purchased. 82,000 of those shares were purchased in the quarter. We completed the sale of our Centralia mold assets and have rolled the other two mold businesses back into continued operations.

And our teams have been very effective at managing tariffs. The Valvec and Everhart teams have been able to virtually neutralize the impact on their P and L thus far. And Big three Precision is unusually well positioned to benefit for being made in America. At this point, I’d like to hand it over to Nick for some more details on the quarter itself. Nick, over to you.

Nicholas Vallejos, Chief Financial Officer, The Eastern Company: Thanks, Ryan. I’ll focus my review today on the company’s financial results from continuing operations for the 2020 Net sales in the 2025 decreased 3% to $70,200,000 from $72,600,000 in last year’s second quarter. The decline was primarily due to decreased sales of truck mirror assemblies. Our backlog as of 06/28/2025 decreased 20,000,000 or 19% to $87,100,000 from $107,300,000 as of 06/29/2024 driven by decreased orders for returnable transport packaging products of $18,400,000 and latch and handle assemblies of 1,300,000 As Ryan will discuss later in this call, this reflects demand changes and industry pullback on EV offerings and volume. Gross margin as a percentage of net sales was 23.3% for the ’20 compared to twenty five point four percent for the prior year period.

The decrease was primarily due to increased costs incurred as we transitioned a MIRROR project from customer provided material to in house sourcing. As a percentage of net sales, product development costs were 1.5% for the 2025 compared to 1.8% for the 2024 period. Selling, general and administrative expenses increased $1,000,000 or 9.4% in the 2025 compared to last year’s period. The increase was primarily due to $1,800,000 of restructuring charges offset by lower personnel costs of $200,000 and $700,000 of other reductions. Other income increased $100,000 in the 2025 compared to the same period in 2024.

The increase was the result of gains on marketable equity securities offset by lower lease income. Net income from continuing operations for the 2025 was $2,000,000 or $0.33 per diluted share compared to net income of $4,100,000 or $0.65 per diluted share for the 2024 period. Included in net income were restructuring charges of approximately $1,800,000 or $1,400,000 net of tax, which resulted in an impact of $0.24 per diluted share in the quarter. As Ryan noted, we expect the RIF we undertook to result in approximately $4,000,000 in annual cash cost savings. Now turning to a non GAAP measure, adjusted net income from continuing operations for the 2025 was $3,500,000 or $0.57 per diluted share compared to adjusted net income of $4,100,000 or $0.65 per diluted share for the prior year period.

At the end of Q2 twenty twenty five our senior net leverage ratio was 1.32 compared to 1.23 to one at the 2024. In addition, we invested $800,000 in capital expenditures and paid dividends of $700,000 in this year’s second quarter. As of 06/28/2025, inventories totaled $54,100,000 down $1,100,000 from the end of fiscal year 2024 and $2,800,000 compared to the end of Q2 twenty twenty four. During the 2025, we repurchased 31,000 shares of common stock under the share repurchase program Eastern’s Board authorized in April 2025. To date this year, we’ve repurchased 82,000 shares totaling approximately $2,100,000 Net debt reduction of $4,000,000 in Q2 twenty twenty five and $5,900,000 in the first half is another indication of our capital allocation focus.

That completes my financial review. I’ll now turn the call back to Ryan.

Ryan Schroeder, Chief Executive Officer, The Eastern Company: Thanks, Nick. So I’ll spend a little bit of time here talking about the two high level markets that participate in. Our two largest end markets are heavy truck and automotive, both of which are challenging at the moment, which I know many of you have heard during this earnings season. On the automotive side, the number of model changes are greatly reduced this year but is expected to increase significantly in the out years. Model changes is the critical driver for our business at Big three Precision as it usually requires new racks and returnable dunnage.

Class eight truck fleet age has increased significantly beyond historical means. This will most certainly lead to an increase in demand as the cost to maintain fleets becomes too burdensome. That really has driven the Class eight truck market is a big indicator for the, valve act performance. To sum it all up, the business environment has impacted our top line, but with all the efforts and initiatives, we have been able to minimize the hit to our profits. And we do expect to see recovery in the coming months and quarters.

Next steps for Eastern, we will be staying nimble and close to our customers to mitigate the effect of the changing environment. We’ll be focused on margin protection, and we’ll have and we have built flexible and resilient supply chains. Careful management and evaluation of expenses has put Eastern in a solid position. This will continue for the remainder of the year. We do believe the challenging environment brings unique opportunities from an M and A standpoint, and we do intend to be very active but disciplined in this regard.

So with that, operator, I’d like to open it up for any questions that we have. Beyond questions, I’ll have a few remarks to close the call.

Conference Operator: Thank you, sir. At this time, we will be conducting our question and answer A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions.

Okay, sir. We currently have no questions on the lines at this time.

Ryan Schroeder, Chief Executive Officer, The Eastern Company: Excellent. Well, from a closing remarks standpoint, I’d like to just say thank you for joining us this morning. There are certainly challenges in the markets we compete in, but at the same time, there are many compelling opportunities. I’m proud of how much our companies have accomplished this quarter, which is most certainly setting us up for success in the near future as well as in the long term. The new leadership team is in place along with a strategic refresh of each of our businesses.

Our conservative balance sheet allows for a unique and opportunistic approach to M and A and or continued share buyback. We look forward to giving you another update after the third quarter. If you need any additional information in the meantime, please reach out to us. And with that, I’d like to say thank you as we close the call.

Conference Operator: Thank you. Ladies and gentlemen, this does conclude today’s call. You may disconnect your lines at this time, and we thank you for your participation.

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